Question

Bottle Top, Inc. recently announced they will pay their first annual dividend next year in the amount of $0.75 a share. The dividend will be increased by 4 percent annually thereafter. How much are you willing to pay for one share of this stock if you require a 10 percent rate of return?

Answer 1

$12.50

Step-by-step explanation:

Data provided in the question

Annual dividend next year = $0.75

Growth rate = 4%

Required rate of return = 10%

So by considering the above information, the price of the share is

= Next year dividend ÷ (Required rate of return - growth rate)

= $0.75 ÷ (10% - 4%)

= ($0.75) ÷ (6%)

= $12.50

Hence we considered all the information which is given in the question